Market Structure: Monopolistic Competition
|
|
- Rafe Terry
- 7 years ago
- Views:
Transcription
1 WSG9 7/7/03 4:34 PM Page Market Structure: Monopolistic Competition OVERVIEW Although the conditions necessary for the existence of perfect competitive and monopoly are unlikely to be found in the real world, an analysis of these market structures is important because it provides insights into more commonly encountered industry types. These insights provide guidance in the formulation of public policy to promote the general economic welfare. Unlike monopolies, perfectly competitive firms produce at minimum per unit cost. Thus, perfectly competitive market structures result in an efficient allocation of society s scarce productive resources and tend to maximize consumer and producer surplus. Although models of perfect competition and monopoly are useful, it is important analytically to bridge the gap between these two extreme cases. The first significant contributions in this direction were provided by Edward Chamberlin and Joan Robinson. These economists observed that in many intensely competitive markets individual firms were able to set the market price of their product. Since these firms exhibit characteristics of both perfect competition and monopoly, this market structure is referred to as monopolistic competition. The market power of monopolistically-competitive firms is derived from product differentiation and market segmentation. Through subtle and noso-subtle distinctions, each firm in a monopolistically competitive industry is a sort of mini-monopolist. But, unlike a monopolist, the ability of these firms to set the market price for their product is severely constrained by the existence of many close substitutes. Thus, the demand for the output of Managerial Economics: Theory and Practice 131 Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.
2 WSG9 7/7/03 4:34 PM Page Market Structure: Monopolistic Competition monopolistically competitive firms is much more price elastic (flatter) than the demand curve confronting the monopolist. A firm in a perfectly competitive industry faces a perfectly-elastic (horizontal) demand curve because its output is a perfect substitute for the output of other firms in the industry. Unlike monopolies and monopolistically-competitive firms, which may be described as price makers, perfectly-competitive firms are price takers. Monopolistic competition is an example of an imperfectly competitive industry. Firms in these industries exercise a degree of market power, albeit less than that exercised by a monopoly. As in the cases of perfect competition and monopoly, profit-maximizing monopolistically competitive and oligopolistic firms will produce at an output level where MR = MC. The characteristics of a monopolistically competitive industry are a large number of sellers acting independently, differentiated products, partial (and limited) control over product price, and relatively easy entry into and exit from the industry. Product differentiation refers to real or perceived differences in goods or services produced by different firms in the same industry. Product differentiation permits market segmentation, which enables individual firms to set their own prices within limits. As in the case of a monopoly, each firm in a monopolistically competitive industry faces a downward-sloping demand curve, which implies that P > MR. The short-run profit-maximizing condition for a monopolistically competitive firm is P > MR = MC. As in the case of perfect competition, the firm earns economic profit when P > ATC, which will attract new firms into the industry. As new firms enter the industry, existing firms lose market share. This is illustrated graphically by a shift to the left of each firm s demand curve. If P < ATC, the firm earns an economic loss, which will cause firms to exit the industry resulting in an increase in market share and a shift to the right of the demand curve. In the long run, the firm earns no economic profit since P = ATC. The demand curve for the firm s product is just tangent to the firm s average total cost curve. The long-run competitive equilibrium in monopolistically competitive industries is P = ATC > MR = MC. As in the case of monopoly, since MC < ATC, per unit cost is not minimized, i.e., monopolistically competitive firms produce inefficiently in the long run. Advertising is an important element of monopolistic competition because it reinforces customer loyalty by highlighting real or perceived product differences between and among products of firms in the industry. The optimal level of advertising expenditures maximizes the firm s profits, which occurs when the firm produces at an output level where marginal cost (which include incremental advertising expenditures) equals marginal revenue.
3 WSG9 7/7/03 4:34 PM Page 133 Multiple Choice Questions 133 When compared with the model of perfect competition, in many respects monopolistic competition is considered an inferior market structure. As in the case of monopoly, the demand curve confronting a monopolisticallycompetitive firm is downward sloping. Thus, monopolistic competition results in lower output levels and higher prices when compared with perfect competition. Moreover, monopolistically competitive firms do not produce at minimum per unit cost. On the other hand, although production is less efficient when compared with perfect competition, the consumer is rewarded with the greater product variety. As in the case of perfect competition, relatively easy entry into and exit from the industry encourages product innovation and development. In the long run, monopolisticallycompetitive firms earn only a normal rate of return. MULTIPLE CHOICE QUESTIONS 9.1 A distinguishing characteristic of monopolistic competition is: A. Large number of firms. B. Low entry barriers. C. Product standardization. D. Product differentiation. 9.2 Monopolistically-competitive firms may be described as: A. Price takers. B. Price creators. C. Price makers. D. Price setters. E. Price negotiators. 9.3 Monopolistically-competitive firms exercise market power because of: A. Product differentiation. B. Government franchises. C. Patent protection. D. High entry barriers. 9.4 In general, the demand for the product of a monopolisticallycompetitive firm is: A. Less elastic compared with that of a monopoly. B. More elastic compared with that of a monopoly. C. More elastic compared with that of a perfectly-competitive firm. D. The same as that for the output of a monopoly.
4 WSG9 7/7/03 4:34 PM Page Market Structure: Monopolistic Competition 9.5 Monopolistic competition is similar to perfect competition because of: I. A large number of firms in the industry. II. Standardized product. III. Ease of entry into and exit from the industry by individual firms. IV. Positive long-run economic profits. Which of the following is correct? A. I and II only. B. II and III only. C. III and IV only. D. I and III only. E. II and IV only. 9.6 In general, the demand curve confronting a monopolistically competitive firm is: A. Steeper than the demand curve confronting a monopolist. B. Flatter than the demand curve facing a monopolist. C. Horizontal. D. Steeper than the demand curve facing a perfectly-competitive firm. E. Both B and D are correct. 9.7 In the short run, monopolistically-competitive firms: A. May earn positive economic profit. B. May earn negative economic profit. C. May earn a normal, above normal, or below normal rate of return. D. Will continue to produce if AVC < P < ATC. E. All of the above. 9.8 The marginal revenue curve of a monopolistically competitive firm is: A. Below the demand curve for its product. B. Above the demand curve for its product. C. The same as the demand curve for its product. D. None of the above. 9.9 A profit-maximizing, monopolistically-competitive firm will produce at an output level where: A. P = ATC. B. MR = MC. C. MR = ATC. D. AVC > MR. E. P = MR.
5 WSG9 7/7/03 4:34 PM Page 135 Multiple Choice Questions Profit-maximizing, monopolistically-competitive firms are similar to monopolies in that: A. P = MR. B. P = MC. C. P = ATC. D. P > MR In the short run, a profit-maximizing, monopolistically-competitive firm will incur an economic loss because: A. MC > MR. B. ATC > P. C. ATC > AVC. D. MC > ATC. E. The slope of the total revenue curve is greater than the slope of the total cost curve In the long run, a monopolistically competitive firm will produce at an output level where: A. P = MC. B. P = MR. C. P = ATC. D. TR > TC. E. P = AVC In the long run, profit-maximizing, monopolistically-competitive firms differ from profit-maximizing, perfectly-competitive firms in that: A. They earn economic profit. B. They produce at minimum per unit cost. C. They are price takers. D. Price does not equal minimum average total cost In the long run, profit-maximizing, monopolistically-competitive firms tend to: A. Produce less output and charge a higher price than perfectlycompetitive firms. B. Produce greater output and charge a lower price than perfectlycompetitive firms. C. Produce less output and charge a lower price than perfectlycompetitive firms. D. Produce greater output and charge a higher price than perfectlycompetitive firms.
6 WSG9 7/7/03 4:34 PM Page Market Structure: Monopolistic Competition 9.15 Refer to Figure 1. The profitmaximizing, monopolisticallycompetitive firm depicted will produce at: A. Q 1 units of output. B. Q 2 units of output. C. Q 3 units of output. D. Q 4 units of output Refer to Figure 1. The profitmaximizing, monopolisticallycompetitive firm depicted will charge a price of: A. P 1. B. P 2. C. P 3. D. P 4. FIGURE Refer to Figure 1. The profit-maximizing, monopolisticallycompetitive firm depicted is: A. Earning zero economic profit. B. In short-run monopolistically-competitive equilibrium. C. In long-run monopolistically-competitive equilibrium. D. Earning negative economic profit. E. Both A and C are correct Refer to Figure 1. The profit-maximizing, monopolisticallycompetitive firm depicted is earning an economic profit of: A. (P 4 - P 1 )Q 2. B. (P 4 - P 2 )Q 2. C. (P 4 - P 3 )Q 2. D. (P 3 - P 2 )Q Refer to Figure 1. The profit-maximizing, monopolisticallycompetitive firm depicted can expect: A. New firms to enter the industry. B. Some firms to exit the industry. C. To expand production. D. To increase the price of its product.
7 WSG9 7/7/03 4:34 PM Page 137 Multiple Choice Questions Refer to Figure 1. The profit-maximizing, monopolisticallycompetitive firm depicted is: A. Producing at a technically efficient output level. B. Producing at minimum per unit cost. C. Producing at a less than the technically efficient output level. D. Producing more than the technically efficient output level. E. Both A and B are correct Refer to Figure 2. The profit-maximizing, monopolisticallycompetitive firm depicted will produce: A. Q 1 units of output. B. Q 2 units of output. C. Q 3 units of output. D. Q 4 units of output Refer to Figure 2. The profitmaximizing, monopolisticallycompetitive firm depicted will charge a price of: A. P 1. B. P 2. C. P 3. D. P 4. FIGURE Refer to Figure 2. The profit-maximizing, monopolisticallycompetitive firm depicted is: A. Earning zero economic profit. B. In short-run monopolistically-competitive equilibrium. C. In long-run monopolistically-competitive equilibrium. D. Earning negative economic profit. E. Both A and C are correct Refer to Figure 2. The profit-maximizing, monopolisticallycompetitive firm depicted can expect: A. New firms to enter the industry. B. Some firms to exit the industry. C. To expand production. D. To increase the price of its product. E. To do nothing.
8 WSG9 7/7/03 4:34 PM Page Market Structure: Monopolistic Competition 9.25 Refer to Figure 2. The profit-maximizing, monopolisticallycompetitive firm depicted is: A. Producing at a technically efficient output level. B. Producing at minimum per unit cost. C. Producing at a less than the technically efficient output level. D. Producing more than the technically efficient output level. E. Both A and B are correct Advertising by profit-maximizing, monopolistically-competitive firms is important because: A. It highlights real or perceived product differences between and among products of firms in the industry. B. It creates and reinforces customer loyalty, which gives the firm limited market power. C. It reenforces the firm s market power. D. All of the above Production by profit-maximizing, monopolistically-competitive firms is not only less efficient than profit-maximizing, perfectlycompetitive firms, there is a tendency for firms in the industry to produce increasing similar products. A. True. B. False. C. Uncertain The model of monopolistic competition proposed by Chamberlin and Robinson in the early-1930 s has been criticized because its has been difficult to identify empirically. A. True. B. False. C. Uncertain. SHORTER PROBLEMS 9.1 The demand equation for a profit-maximizing, monopolisticallycompetitive firm is: Q = P where P is the price of the product and Q is the number of units produced. Suppose that the firm s marginal cost of production is $24. Calculate the firm s profit-maximizing price and output level.
9 WSG9 7/7/03 4:34 PM Page 139 Longer Problems The demand for the product of a typical profit-maximizing, monopolistically-competitive firm is given by the equation: Q = P where P is the price of the product and Q is the number of units produced. The firm s total cost equation is: TC = Q + (11/30)Q 2 A. Calculate the firm s profit-maximizing price and output level. B. Calculate the firm s profit at the profit-maximizing output level. Is this firm in short-run or long-run monopolistically competitive equilibrium? C. Based on your answer to part B., what is likely to happen in this industry in the long run? LONGER PROBLEMS 9.1 Suppose that a typical monopolistically-competitive firm faces the following demand and total cost equations for its product: Q = P TC = Q + Q 2 where P is the price of the product and Q is the number of units produced. A. What is the firm s profit-maximizing price and output level? B. What is the relationship between P and ATC at the profitmaximizing output level. C. Is this firm earning an economic profit? Is this firm in short-run or long-run monopolistically competitive equilibrium? Will new firms enter into or exit from this industry? 9.2 In the previous problem it was determined that a typical monopolistically-competitive firm earned positive economic profits. As a result of new firms entering into the industry the demand for this firm s product became: Q = 20 - (5/3)P where P is the price of the product and Q is the number of units produced. As before, the firm s total cost equation is: TC = Q + Q 2
10 WSG9 7/7/03 4:34 PM Page Market Structure: Monopolistic Competition A. What is the firm s profit-maximizing price and output level? B. What is the relationship between P and ATC at the profitmaximizing output level. C. Is this firm earning an economic profit? Is this firm in short-run or long-run monopolistically competitive equilibrium? Will new firms enter into or exit from this industry? 9.3 In the previous problem it was determined that the typical monopolistically-competitive firm earned negative economic profits. As a result of some firms exiting into the industry, the demand for this firm s product became: Q = 32-2P where P is the price of the product and Q is the number of units produced. Once again, the firm s total cost equation is: TC = Q + Q 2 A. What is the firm s profit-maximizing price and output level? B. What is the relationship between P and ATC at the profitmaximizing output level. C. Is this firm earning an economic profit? Is this firm in short-run or long-run monopolistically competitive equilibrium? Will new firms enter into or exit from this industry? ANSWERS TO MULTIPLE CHOICE QUESTIONS 9.1 D. 9.2 C. 9.3 A. 9.4 B. 9.5 D. 9.6 E. 9.7 E. 9.8 A. 9.9 B D B C D A B D B C A C B C E E C D B A.
11 WSG9 7/7/03 4:34 PM Page 141 Solutions to Longer Problems 141 SOLUTIONS TO SHORTER PROBLEMS 9.1 P = Q TR = ( Q)Q = 240Q - 0.4Q 2 Profit is maximized at the output level where MR = MC. MR = dtr/dq = Q Q = 24 Q* = 270 units P* = (270) = $ A. P = 90 - (2/15)Q TR = PQ = 90Q - (2/15)Q 2 p=tr - TC = [90Q - (2/15)Q 2 ] - [100-50Q + (11/30)Q 2 ] = Q - 0.5Q 2 dp/dq = Q = 0, i.e., the first-order condition for p maximization. d 2 p/dq 2 =-1 < 0, i.e., the second-order condition for p maximization is satisfied. Solving the first-order condition for Q we obtain Q* = 140 units P* = 90 - (2/15)(140) = $71.33 B. p* = (140) - 0.5(140) 2 = $9,700 The firm is in short-run monopolistically-competitive equilibrium since it is earning positive economic profit C. Positive economics profits will attract new firms into the industry. Each firm will offer a somewhat different product than other firms in the industry. As a result, the market share of each of the other firms in the industry will diminish. Diagrammatically, each firm s demand curve will shift toward to the left and become more elastic. SOLUTIONS TO LONGER PROBLEMS 9.1 A. P = Q TR = 22Q - Q 2 p=tr - TC = (22Q - Q 2 ) - (216-20Q + Q 2 ) = Q - 1.4Q 2 dp/dq = Q = 0, i.e., the first-order condition for p maximization.
12 WSG9 7/7/03 4:34 PM Page Market Structure: Monopolistic Competition d 2 p/dq 2 =-2.8 < 0, i.e., the second-order condition for p maximization is verified. Solving the first-order condition for Q we obtain Q* = 15 P* = (15) = $16 B. ATC = TC/Q = (216-20Q + Q 2 )/Q = 216Q Q = 216(15) (15) = $9.4 < P* C. p* = (15) - 1.4(15) 2 = $99 Since this firm is earning positive economic profits then the firm is in short-run monopolistically competitive equilibrium. The existence of positive economic profits will attract new firms into the industry. Each firm in the industry offers a somewhat different product than other firms in the industry. As a result, the market share of each of the other firms in the industry will diminish. Diagrammatically, each firm s demand curve will shift toward to the left and become more elastic. 9.2 A. P = Q TR = 12Q - 0.6Q 2 p=tr - TC = (12Q - 0.6Q 2 ) - (216-20Q + Q 2 ) = Q - 1.6Q 2 dp/dq = Q = 0, i.e., the first-order condition for p maximization. d 2 p/dq 2 =-3.2 < 0, i.e., the second-order condition for p maximization is verified. Solving the first-order condition for Q we obtain Q* = 10 P* = (10) = $6 B. ATC = TC/Q = (216-20Q + Q 2 )/Q = 216Q Q = 216(10) (10) = $11.6 > P*
13 WSG9 7/7/03 4:34 PM Page 143 Solutions to Longer Problems 143 C. p* = (10) - 1.6(10) 2 =-$56 Since this firm is earning negative economic profits, then the firm is in short-run monopolistically competitive equilibrium. The existence of negative economic profits result in some firms exiting the industry. Each firm in the industry offers a somewhat different product than other firms in the industry. As a result, the market share of each of the other firms in the industry will increase. Diagrammatically, each firm s demand curve will shift toward to the right and become less elastic. 9.3 A. P = Q TR = 12Q - 0.6Q 2 p=tr - TC = (16Q - 0.5Q 2 ) - (216-20Q + Q 2 ) = Q - 1.5Q 2 dp/dq = 36-3Q = 0, i.e., the first-order condition for p maximization. d 2 p/dq 2 =-3 < 0, i.e., the second-order condition for p maximization is verified. Solving the first-order condition for Q we obtain Q* = 12 P* = (10) = $11 B. ATC = TC/Q = (216-20Q + Q 2 )/Q = 216Q Q = 216(12) (12) = $11 = P* C. p* = (12) - 1.5(12) 2 =-$0 Since this firm is earning zero economic profits, then the firm is in long-run monopolistically competitive equilibrium. Since each firm in the industry is earning zero economic profits, then there will be no incentive for firms to enter into or exit from the industry.
14 WSG9 7/7/03 4:34 PM Page 144
Market Structure: Perfect Competition and Monopoly
WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit
More informationProfit and Revenue Maximization
WSG7 7/7/03 4:36 PM Page 95 7 Profit and Revenue Maximization OVERVIEW The purpose of this chapter is to develop a general framework for finding optimal solutions to managerial decision-making problems.
More informationCost OVERVIEW. WSG6 7/7/03 4:36 PM Page 79. Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.
WSG6 7/7/03 4:36 PM Page 79 6 Cost OVERVIEW The previous chapter reviewed the theoretical implications of the technological process whereby factors of production are efficiently transformed into goods
More informationPractice Questions Week 8 Day 1
Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants
More informationManagerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect
More informationAn increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.
1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.
More informationChapter 15: Monopoly WHY MONOPOLIES ARISE HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS
Chapter 15: While a competitive firm is a taker, a monopoly firm is a maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The
More informationMarket Structure: Duopoly and Oligopoly
WSG10 7/7/03 4:24 PM Page 145 10 Market Structure: Duopoly and Oligopoly OVERVIEW An oligopoly is an industry comprising a few firms. A duopoly, which is a special case of oligopoly, is an industry consisting
More informationc. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?
Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm
More informationLearning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly
Chapter 6 The Two Extremes: Perfect Competition and Pure Monopoly Learning Objectives List the four characteristics of a perfectly competitive market. Describe how a perfect competitor makes the decision
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.
Principles of Microeconomics, Quiz #5 Fall 2007 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) Perfect competition
More informationPricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young
Chapter 9 Pricing and Output Decisions: i Perfect Competition and Monopoly M i l E i E i Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Pricing and
More informationANSWERS TO END-OF-CHAPTER QUESTIONS
ANSWERS TO END-OF-CHAPTER QUESTIONS 23-1 Briefly indicate the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications
More informationMonopolistic Competition
In this chapter, look for the answers to these questions: How is similar to perfect? How is it similar to monopoly? How do ally competitive firms choose price and? Do they earn economic profit? In what
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chap 13 Monopolistic Competition and Oligopoly These questions may include topics that were not covered in class and may not be on the exam. MULTIPLE CHOICE. Choose the one alternative that best completes
More informationD) Marginal revenue is the rate at which total revenue changes with respect to changes in output.
Ch. 9 1. Which of the following is not an assumption of a perfectly competitive market? A) Fragmented industry B) Differentiated product C) Perfect information D) Equal access to resources 2. Which of
More informationChapter 6 Competitive Markets
Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a
More informationMonopoly WHY MONOPOLIES ARISE
In this chapter, look for the answers to these questions: Why do monopolies arise? Why is MR < P for a monopolist? How do monopolies choose their P and Q? How do monopolies affect society s well-being?
More informationChapter. Perfect Competition CHAPTER IN PERSPECTIVE
Perfect Competition Chapter 10 CHAPTER IN PERSPECTIVE In Chapter 10 we study perfect competition, the market that arises when the demand for a product is large relative to the output of a single producer.
More informationPractice Multiple Choice Questions Answers are bolded. Explanations to come soon!!
Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!! For more, please visit: http://courses.missouristate.edu/reedolsen/courses/eco165/qeq.htm Market Equilibrium and Applications
More informationUnderstanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen
Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Chapter 5 Perfect Competition Chapter Objectives! In this chapter you will: " Consider the four market structures, and the main differences
More informationMPP 801 Monopoly Kevin Wainwright Study Questions
MPP 801 Monopoly Kevin Wainwright Study Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The marginal revenue facing a monopolist A) is
More informationFinal Exam (Version 1) Answers
Final Exam Economics 101 Fall 2003 Wallace Final Exam (Version 1) Answers 1. The marginal revenue product equals A) total revenue divided by total product (output). B) marginal revenue divided by marginal
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Practice for Perfect Competition Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is a defining characteristic of a
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chapter 11 Perfect Competition - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with A) a
More informationLearning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to:
Learning Objectives After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Discuss three characteristics of perfectly competitive
More informationMicroeconomics Topic 7: Contrast market outcomes under monopoly and competition.
Microeconomics Topic 7: Contrast market outcomes under monopoly and competition. Reference: N. Gregory Mankiw s rinciples of Microeconomics, 2 nd edition, Chapter 14 (p. 291-314) and Chapter 15 (p. 315-347).
More informationCHAPTER 6 MARKET STRUCTURE
CHAPTER 6 MARKET STRUCTURE CHAPTER SUMMARY This chapter presents an economic analysis of market structure. It starts with perfect competition as a benchmark. Potential barriers to entry, that might limit
More informationChapter 8. Competitive Firms and Markets
Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.
Principles of Microeconomics Fall 2007, Quiz #6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) A monopoly is
More informationECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS
ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot
More informationChapter 7 Monopoly, Oligopoly and Strategy
Chapter 7 Monopoly, Oligopoly and Strategy After reading Chapter 7, MONOPOLY, OLIGOPOLY AND STRATEGY, you should be able to: Define the characteristics of Monopoly and Oligopoly, and explain why the are
More informationProductioin OVERVIEW. WSG5 7/7/03 4:35 PM Page 63. Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.
WSG5 7/7/03 4:35 PM Page 63 5 Productioin OVERVIEW This chapter reviews the general problem of transforming productive resources in goods and services for sale in the market. A production function is the
More informationCHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition
CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates
More informationCHAPTER 11 PRICE AND OUTPUT IN MONOPOLY, MONOPOLISTIC COMPETITION, AND PERFECT COMPETITION
CHAPTER 11 PRICE AND OUTPUT IN MONOPOLY, MONOPOLISTIC COMPETITION, AND PERFECT COMPETITION Chapter in a Nutshell Now that we understand the characteristics of different market structures, we ask the question
More information11 PERFECT COMPETITION. Chapter. Competition
Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat
More informationChapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit
Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit 1) Accountants include costs as part of a firm's costs, while economists include costs. A) explicit; no explicit B) implicit;
More informationCHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY
CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of -.0. It has a constant marginal cost of $0 per unit and sets a price to maximize
More informationFigure: Computing Monopoly Profit
Name: Date: 1. Most electric, gas, and water companies are examples of: A) unregulated monopolies. B) natural monopolies. C) restricted-input monopolies. D) sunk-cost monopolies. Use the following to answer
More informationCHAPTER 9: PURE COMPETITION
CHAPTER 9: PURE COMPETITION Introduction In Chapters 9-11, we reach the heart of microeconomics, the concepts which comprise more than a quarter of the AP microeconomics exam. With a fuller understanding
More information1 of 14 11/5/2013 4:33 PM
1 of 14 11/5/2013 4:33 PM Market power is A characteristic of all market structures. The ability to alter the market price of a product. Most common for competitive firms. Enjoyed by all firms at high
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chapter 11 Monopoly practice Davidson spring2007 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly industry is characterized by 1) A)
More informationCEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.
1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market
More informationChapter 14 Monopoly. 14.1 Monopoly and How It Arises
Chapter 14 Monopoly 14.1 Monopoly and How It Arises 1) One of the requirements for a monopoly is that A) products are high priced. B) there are several close substitutes for the product. C) there is a
More informationProfit Maximization. 2. product homogeneity
Perfectly Competitive Markets It is essentially a market in which there is enough competition that it doesn t make sense to identify your rivals. There are so many competitors that you cannot single out
More informationEcon 101: Principles of Microeconomics
Econ 101: Principles of Microeconomics Chapter 16 - Monopolistic Competition and Product Differentiation Fall 2010 Herriges (ISU) Ch. 16 Monopolistic Competition Fall 2010 1 / 18 Outline 1 What is Monopolistic
More informationPre-Test Chapter 23 ed17
Pre-Test Chapter 23 ed17 Multiple Choice Questions 1. The kinked-demand curve model of oligopoly: A. assumes a firm's rivals will ignore a price cut but match a price increase. B. embodies the possibility
More informationN. Gregory Mankiw Principles of Economics. Chapter 15. MONOPOLY
N. Gregory Mankiw Principles of Economics Chapter 15. MONOPOLY Solutions to Problems and Applications 1. The following table shows revenue, costs, and profits, where quantities are in thousands, and total
More informationchapter Perfect Competition and the >> Supply Curve Section 3: The Industry Supply Curve
chapter 9 The industry supply curve shows the relationship between the price of a good and the total output of the industry as a whole. Perfect Competition and the >> Supply Curve Section 3: The Industry
More informationAll these models were characterized by constant returns to scale technologies and perfectly competitive markets.
Economies of scale and international trade In the models discussed so far, differences in prices across countries (the source of gains from trade) were attributed to differences in resources/technology.
More informationChapter 9: Perfect Competition
Chapter 9: Perfect Competition Perfect Competition Law of One Price Short-Run Equilibrium Long-Run Equilibrium Maximize Profit Market Equilibrium Constant- Cost Industry Increasing- Cost Industry Decreasing-
More informationEcon 201 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam.
, Fall 2007 Version A Special Codes 00000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 201 Final Exam 1. For a profit-maximizing monopolist, a. MR
More informationPrinciples of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9
Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #2 must be completed within the allocated time (i.e., between
More informationProfit maximization in different market structures
Profit maximization in different market structures In the cappuccino problem as well in your team project, demand is clearly downward sloping if the store wants to sell more drink, it has to lower the
More informationPure Competition urely competitive markets are used as the benchmark to evaluate market
R. Larry Reynolds Pure Competition urely competitive markets are used as the benchmark to evaluate market P performance. It is generally believed that market structure influences the behavior and performance
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Economics 103 Spring 2012: Multiple choice review questions for final exam. Exam will cover chapters on perfect competition, monopoly, monopolistic competition and oligopoly up to the Nash equilibrium
More informationManagerial Economics
Managerial Economics Unit 3: Perfect Competition, Monopoly and Monopolistic Competition Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2012 Winter-Ebmer, Managerial Economics: Unit 3 1
More informationPre-Test Chapter 21 ed17
Pre-Test Chapter 21 ed17 Multiple Choice Questions 1. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exodus
More informationUNIVERSITY OF CALICUT MICRO ECONOMICS - II
UNIVERSITY OF CALICUT SCHOOL OF DISTANCE EDUCATION BA ECONOMICS III SEMESTER CORE COURSE (2011 Admission onwards) MICRO ECONOMICS - II QUESTION BANK 1. Which of the following industry is most closely approximates
More informationChapter 16 Monopolistic Competition and Oligopoly
Chapter 16 Monopolistic Competition and Oligopoly Market Structure Market structure refers to the physical characteristics of the market within which firms interact It is determined by the number of firms
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The four-firm concentration ratio equals the percentage of the value of accounted for by the four
More informationBEE2017 Intermediate Microeconomics 2
BEE2017 Intermediate Microeconomics 2 Dieter Balkenborg Sotiris Karkalakos Yiannis Vailakis Organisation Lectures Mon 14:00-15:00, STC/C Wed 12:00-13:00, STC/D Tutorials Mon 15:00-16:00, STC/106 (will
More information1 Monopoly Why Monopolies Arise? Monopoly is a rm that is the sole seller of a product without close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller
More informationPrice Theory Lecture 6: Market Structure Perfect Competition
Price Theory Lecture 6: Market tructure Perfect Competition I. Concepts of Competition Whether a firm can be regarded as competitive depends on several factors, the most important of which are: The number
More informationOligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.
Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry
More informationAP Microeconomics Review
AP Microeconomics Review 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return
More informationCHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.)
CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.) Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates the
More informationEquilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits.
Equilibrium of a firm under perfect competition in the short-run. A firm is under equilibrium at that point where it maximizes its profits. Profit depends upon two factors Revenue Structure Cost Structure
More informationMidterm Exam #1 - Answers
Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.
More informationchapter Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost
chapter 8 Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost We ve just seen how to derive a firm s total cost curve from its production function.
More informationCHAPTER 11: MONOPOLISTIC COMPETITION AND OLIGOPOLY
CHAPTER 11: MONOPOLISTIC COMPETITION AND OLIGOPOLY Introduction While perfect competition and monopoly represent the extremes of market structures, most American firms are found in the two market structures
More informationEcon 101: Principles of Microeconomics
Econ 101: Principles of Microeconomics Chapter 14 - Monopoly Fall 2010 Herriges (ISU) Ch. 14 Monopoly Fall 2010 1 / 35 Outline 1 Monopolies What Monopolies Do 2 Profit Maximization for the Monopolist 3
More informationCHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY
CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit.
More information4. Market Structures. Learning Objectives 4-63. Market Structures
1. Supply and Demand: Introduction 3 2. Supply and Demand: Consumer Demand 33 3. Supply and Demand: Company Analysis 43 4. Market Structures 63 5. Key Formulas 81 2014 Allen Resources, Inc. All rights
More informationA2 Micro Business Economics Diagrams
A2 Micro Business Economics Diagrams Advice on drawing diagrams in the exam The right size for a diagram is ½ of a side of A4 don t make them too small if needed, move onto a new side of paper rather than
More informationAt the end of Chapter 18, you should be able to answer the following:
1 How to Study for Chapter 18 Pure Monopoly Chapter 18 considers the opposite of perfect competition --- pure monopoly. 1. Begin by looking over the Objectives listed below. This will tell you the main
More informationProfit Maximization. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University
Profit Maximization PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 The Nature and Behavior of Firms A firm An association of individuals Firms Who have organized themselves
More informationb. Cost of Any Action is measure in foregone opportunities c.,marginal costs and benefits in decision making
1 Economics 130-Windward Community College Review Sheet for the Final Exam This final exam is comprehensive in nature and in scope. The test will be divided into two parts: a multiple-choice section and
More informationPART A: For each worker, determine that worker's marginal product of labor.
ECON 3310 Homework #4 - Solutions 1: Suppose the following indicates how many units of output y you can produce per hour with different levels of labor input (given your current factory capacity): PART
More informationA Detailed Price Discrimination Example
A Detailed Price Discrimination Example Suppose that there are two different types of customers for a monopolist s product. Customers of type 1 have demand curves as follows. These demand curves include
More informationECON 600 Lecture 5: Market Structure - Monopoly. Monopoly: a firm that is the only seller of a good or service with no close substitutes.
I. The Definition of Monopoly ECON 600 Lecture 5: Market Structure - Monopoly Monopoly: a firm that is the only seller of a good or service with no close substitutes. This definition is abstract, just
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Test 2 Review Econ 201, V. Tremblay MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Barbara left a $25,000 job as an architect to run a catering
More informationMonopoly. Monopoly Defined
Monopoly In chapter 9 we described an idealized market system in which all firms are perfectly competitive. In chapter 11 we turn to one of the blemishes of the market system --the possibility that some
More informationLong Run Supply and the Analysis of Competitive Markets. 1 Long Run Competitive Equilibrium
Long Run Competitive Equilibrium. rinciples of Microeconomics, Fall 7 Chia-Hui Chen October 9, 7 Lecture 6 Long Run Supply and the Analysis of Competitive Markets Outline. Chap 8: Long Run Equilibrium.
More informationAP Microeconomics Chapter 12 Outline
I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.
More informationchapter: Solution Solution Monopoly 1. Each of the following firms possesses market power. Explain its source.
S197-S28_Krugman2e_PS_Ch14.qxp 9/16/8 9:22 PM Page S-197 Monopoly chapter: 14 1. Each of the following firms possesses market power. Explain its source. a. Merck, the producer of the patented cholesterol-lowering
More information13 MONOPOLISTIC COMPETITION AND OLIGOPOLY. Chapter. Key Concepts
Chapter 13 MONOPOLISTIC COMPETITION AND OLIGOPOLY Key Concepts Monopolistic Competition The market structure of most industries lies between the extremes of perfect competition and monopoly. Monopolistic
More informationThus MR(Q) = P (Q) Q P (Q 1) (Q 1) < P (Q) Q P (Q) (Q 1) = P (Q), since P (Q 1) > P (Q).
A monopolist s marginal revenue is always less than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for each additional unit of output. It is the difference
More informationMarket Supply in the Short Run
Equilibrium in Perfectly Competitive Markets (Assume for simplicity that all firms have access to the same technology and input markets, so they all have the same cost curves.) Market Supply in the Short
More informationChapter 14 Monopoly. 14.1 Monopoly and How It Arises
Chapter 14 Monopoly 14.1 Monopoly and How It Arises 1) A major characteristic of monopoly is A) a single seller of a product. B) multiple sellers of a product. C) two sellers of a product. D) a few sellers
More informationEconomics 100 Exam 2
Name: 1. During the long run: Economics 100 Exam 2 A. Output is limited because of the law of diminishing returns B. The scale of operations cannot be changed C. The firm must decide how to use the current
More information1. Supply and demand are the most important concepts in economics.
Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Market is a group of buyers and sellers of a particular good or service. P. 66. b. These individuals
More informationEcon 202 Exam 3 Practice Problems
Econ 202 Exam 3 Practice Problems Principles of Microeconomics Dr. Phillip Miller Multiple Choice Identify the choice that best completes the statement or answers the question. Chapter 13 Production and
More informationQE1: Economics Notes 1
QE1: Economics Notes 1 Box 1: The Household and Consumer Welfare The final basket of goods that is chosen are determined by three factors: a. Income b. Price c. Preferences Substitution Effect: change
More informationEcon 201 Lecture 17. The marginal benefit of expanding output by one unit is the market price. Marginal cost of producing corn
Econ 201 Lecture 17 The Perfectly Competitive Firm Is a Taker (Recap) The perfectly competitive firm has no influence over the market price. It can sell as many units as it wishes at that price. Typically,
More informationMonopoly Quantity & Price Elasticity Welfare. Monopoly Chapter 24
Monopol monopl.gif (GIF Image, 289x289 pixels) Chapter 24 http://i4.photobu Motivating Questions What price and quantit does a monopol choose? What are the welfare effects of monopol? What are the effects
More informationEXAM TWO REVIEW: A. Explicit Cost vs. Implicit Cost and Accounting Costs vs. Economic Costs:
EXAM TWO REVIEW: A. Explicit Cost vs. Implicit Cost and Accounting Costs vs. Economic Costs: Economic Cost: the monetary value of all inputs used in a particular activity or enterprise over a given period.
More informationTable of Contents MICRO ECONOMICS
economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...
More information